This week brings us the release of six economic reports that may affect mortgage rates in addition to an FOMC meeting and a couple Treasury auctions. Two of the week's reports are considered to be extremely important to the financial and mortgage markets and can cause a great deal of volatility. Throw in the FOMC meeting and we have the makings of a highly important week, not only for mortgage rates but also for the broader financial markets.
There is nothing scheduled for tomorrow that is likely to move rates. April's Consumer Confidence Index (CCI) will kick-off the week's schedule at 10:00 AM ET Tuesday. This index is considered to be an indicator of future spending by consumers. The Conference Board surveys 5,000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and savings, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth to a minimum. On the other hand, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 102.2, which would be an increase from March's 101.3 reading. The lower the reading, the better the news it is for mortgage rates.
Next up is the first of this week's two key pieces of economic data. That would be the preliminary version of the 1st Quarter Gross Domestic Product (GDP). This is arguably the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measure of economic growth or contraction. I expect this report to cause sizable movement in the financial markets Wednesday and therefore the mortgage market also. Analysts are expecting it to show that the economy grew at an annual rate of 1.1% during the first three months of this year. That would be a much slower pace than the 2.2% pace of the final quarter of last year. A smaller increase or a decline would be considered good news for mortgage rates. But a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates Wednesday morning.
This week's FOMC meeting will begin Tuesday and adjourn Wednesday afternoon. It will likely adjourn with an announcement of no change to key short-term interest rates, but we may see some volatility in the markets following the post-meeting statement. If the statement gives any hint of change in their current forecasts on when they expect to adjust key short-term interest rates, we could see a sizable change to mortgage rates Wednesday afternoon.
Thursday has two reports scheduled that are worth watching. The first is March's Personal Income and Outlays data at 8:30 AM ET. It helps us measure consumers' ability to spend and current spending habits. This information is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer's income is rising, they have the ability to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.2% increase in the income reading and a 0.5% rise in spending. If we see smaller than expected readings, the bond market should open higher Thursday morning.
Also early Thursday is the 1st Quarter Employment Cost Index (ECI). This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing although I doubt this report will affect mortgage rates. Current forecasts are showing a rise of 0.6%.
The week closes with the two more reports, one of which is considered to be a key piece of data for bonds and mortgage rates. The University of Michigan will update their Index of Consumer Sentiment for April just before 10:00 AM ET Friday. This report gives us an indication of consumer sentiment and their willingness to spend. Current forecasts are calling for little change from the preliminary reading of 95.9. This means that surveyed consumers were just as optimistic about their own financial situations as they were earlier this month. This data is relevant because if consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. I don't expect this report to have a significant impact on bonds and mortgage pricing unless it shows a noticeable revision due to the importance of the day’s second release.
The Institute for Supply Management (ISM) will post their manufacturing index for April late Thursday morning in the second highly important report of the week. This is usually the first important economic report released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. Analysts are expecting to see a reading of 52.0, up from March's 51.5. Ideally, bond traders would like to see a reading below 50.0 as it would hint at contraction in the manufacturing sector rather than growth, but a decline from March's level would still be good news for mortgage shoppers.
In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Treasury Notes Tuesday and 7-year Notes on Wednesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. On the other hand, strong sales usually make government securities more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during afternoon hours.
Overall, I am expecting it to be a pretty active week for the markets and mortgage rates. We have several days that appear likely to be particularly volatile. Wednesday looks to be the best candidate for most important due to the GDP reading and FOMC meeting. The calmest day could be tomorrow, although I would not be surprised to still see some movement as investors prepare for this week’s activities.